Free & Clear: August 2013

What's the big idea?By John Hood

Ideas matter. If I didn’t think that, I wouldn’t have chosen an occupation that involves the discussion and dissemination of them. Still, there are more than a few economists, political scientists and conspiracy theorists who believe ideology is irrelevant. They argue that class consciousness, inexorable historical trends or special-interest influence can explain social action without regard to the ideas being espoused.

Nonsense. History is full of examples of important ideas transforming mankind, such as monotheism, experimental science and double-entry bookkeeping (which led to the creation of partnerships and corporations, the building blocks of modern capitalism). Human beings are willing to make great sacrifices, including their lives, to defend or advance what they believe. To say that an idea is powerful is not necessarily to say it is true. Consider the case of Marxism. By the time my son Alex was in first grade, he had figured out the foundational tenet of Marxist economics — the labor theory of value — was preposterous. He and his friends had discovered on the playground that while two kids might put the same amount of time and effort into a task, such as playing kickball or digging a foxhole for dirt-clod wars, the actual value of their respective efforts was rarely the same. One kid invariably worked smarter or better guessed what his fellows wanted done. To suggest that labor effort determines value is to fly in the face of practical experience. But Marxist economics persists in the fevered dreams of petty tyrants and the cloistered fantasies of petty professors. Right now, some unsuspecting student is about to get a lecture on the labor theory of value from a Marxist bitter-ender. (Fortunately, the student is likely to be inattentive or drowsy and miss the “lesson.”)

Formal education is only one of many methods by which people receive and come to accept ideas. Much of what we believe comes from parents, peer groups or religious institutions. Armed with modern technology that puts much of the world’s library at our fingertips, we are also freer than any human beings have ever been to explore new ideas on our own.Over the past four decades, ideas such as deregulating markets and adopting pro-growth tax codes have become increasingly powerful in public policy. You may be used to thinking about them in a domestic context, but the real action has been overseas. Since the end of the Cold War, for example, 14 post-communist countries have adopted at least partial privatization of their social-security systems and 21 have adopted flat-rate income taxes. America has yet to do either. More generally, as China, India, Indonesia and other countries of the developing world began to replace command-and-control economies with market institutions in the 1970s and ’80s, their standards of living began to rise. In fact, since 1970 we have experienced the biggest, broadest reduction in global poverty in recorded history. Of course ideas have power.

But how do such ideas spread? It’s not just about insider influence or massive expenditure. In a 2013 study for the journal Comparative Political Studies of post-Cold War reforms in Eastern Europe and Central Asia, the authors concluded that while the World Bank and other large institutions spent significant resources promoting pension privatization, they didn’t do the same for the flat tax, which was advocated primarily by independent scholars and small free-market institutes. Yet the flat tax was more broadly adopted. Closer to home, American politics has become a clash of ideas, not just a clash of industry sectors or regional cultures. Republicans are more consistently conservative than they used to be, and Democrats are more consistently liberal. A fiscally conservative Southerner who would have been a “boll weevil” Democrat in the 1960s is now a right-of-center Republican. A socially liberal Yankee who would have been a “gypsy moth” Republican is now a left-of-center Democrat.

Two scholars, Andrew Pickering and James Rockey, believe that those differences have been magnified by economic change. In a study in the journal Public Choice, they looked at government size and measures of public ideology for American states. They found that the relationship was stronger when incomes were higher. Back in the 1950s and early 1960s, ideology had little impact on state-government size, which didn’t vary much. As incomes rose, however, states began to make different decisions about how to respond, reflecting different prevailing ideologies. California, for example, taxed rising incomes at higher rates to fund more government programs. Texas left more of that income in private hands to spend.

As a result, we now have a new ideological conflict about state policy and economic growth. North Carolina is right in the middle of it. What’s the big idea? We’re about to find out.

John Hood is chairman and president of the John Locke Foundation. You can reach him at jhood@johnlocke.org.